The S&P 500 is back near its all-time high, and many stocks within the index are trading at extreme valuations (Walmart at a price-to-earnings ratio of 39.82, anyone?). Yet one inflation-beating dividend growth stock is actually down year-to-date while trading at a dirt-cheap valuation.

That business is The Kroger Co. ($KR).

Kroger is the largest supermarket chain in America. The company operates more than 2,700 grocery stores under a variety of brands (including Ralphs, Mariano's, and Fred Meyer), serving more than 11 million customers each day.

Founded in 1883, Kroger pioneered many supermarket concepts, including in-store bakeries.

This week, Kroger announced an 11.4% dividend increase. The company's press release also noted that: "The company's quarterly dividend has grown at a 13% compounded annual growth rate since it was reinstated in 2006."

This is a company that doesn't receive as much attention as retail giants like Walmart or Costco, but Kroger offers a respectable starting yield and impressive long-term dividend growth. Better yet, the stock trades at a valuation far below Walmart's PE ratio of 39.82 or Costco's PE of 46.33.

At the time of writing, Kroger trades at a price to earnings ratio of 11.07 while offering a 2.70% starting dividend yield. That payout is backed by a 5-year compound annual dividend growth rate of 14.22% and a conservative payout ratio of just 28.28%.

In terms of long-term performance, Kroger spent several years with its share price suppressed due to its pending acquisition of rival retailer Albertsons. Although the deal ultimately fell through, the uncertainty weighed on the stock for years, with shares trading at roughly $45 from 2022 until early 2024.

As a result, the company delivered a relatively weak 10-year average annual total return of just 6.83%.

Zooming out, however, Kroger has produced a 20-year average annual total return of 10.93%, roughly in line with the State Street SPDR S&P 500 ETF Trust's 20-year average annual return of 11.27%.

Groceries are a low-margin business with finite growth potential.

Selling hot dogs and cantaloupes isn't like the AI industry, where companies are inventing entirely new dimensions of human existence. Kroger will probably remain a low-growth company. However, its payout ratio is low enough to support future double-digit dividend increases.

With a starting yield near 3% and a long-term compound annual dividend growth rate of 13%, this could be a solid income investment capable of doubling its yield on cost in seven years or less.

I'm already a long-time Kroger shareholder, having bought the stock when it traded around $45 per share. But after the recent combination of a lower share price and a fresh dividend increase, I'd be interested in adding to my position.

Late last year, a Klimt sold for the highest price ever paid for modern art at auction.

An outlier sure, but it wasn't a fluke. U.S. auction sales grew 23.1% in 2025. The $1-5mm segment even grew 40.8% YoY.

Meanwhile, Apollo’s chief economist Torsten Slok said to expect ‘zero in return in the S&P 500 over the coming decade.’

So, that's where it gets interesting.

Each environment is unique, but after dot-com, post war and contemporary art grew about 24% annually for a decade. After 2008, about 11% for 12 years.

It’s also had near-zero correlation with the S&P 500 since ‘95.*

Now, Masterworks lets you invest in shares of artworks featuring legends like Banksy, Basquiat, and Picasso.

Shares can sell quickly, but my subscribers can skip the waitlist:

Skip the waitlist

^{*Investing involves risk. Past performance is not indicative of future returns. See important Reg A disclosures at masterworks.com/cd.}

Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.